Stocks Rebound Strongly After Early Losses, AAPL Leads
5:03 pm Friday, January 28th, 2022
Stocks climbed at the end of a week marked by intense gyrations as strong earnings from Apple Inc. lured dip buyers, overshadowing fears that the Federal Reserve will have to act aggressively to thwart the fastest inflation since the 1980s.
In general, the mega-caps are picking up the slack, including Visa (V), which also reported better than expected earnings results. The Vanguard Mega Cap Growth ETF (MGK) is up 2.0%, versus a 0.1% decline in the Invesco S&P 500 Equal Weight ETF (RSP).
From a sector perspective, the S&P 500 information technology (+2.4%), communication services (+1.4%), and consumer discretionary (+0.7%) sectors, which are home to the mega-caps, are outperforming. Conversely, the cyclical energy (-1.8%), materials (-1.1%), and industrials (-0.9%) sectors underperform in negative territory.
Apple’s leadership is strong measure of support for the market, yet the market was trading lower earlier today when Apple was trading higher, suggesting that there’s more to the price action than Apple. Month-end rebalancing activity and mechanical factors following a disconcerting stretch of losses could be influential factors.
Lower interest rates have helped the cause, too, following inflation data that was roughly in-line with expectations. The 10-yr yield is down two basis points to 1.79% after flirting with 1.85% prior to the data while the 2-yr yield is down three basis points to 1.16%.
Specifically, the PCE Price Index for December increased 0.4% month-over-month, as expected, and was up 5.8% year-over-year. The Q4 Employment Cost Index increased 1.0% (Briefing.com consensus 1.1%) following a 1.3% increase in the third quarter.
The elevated PCE data should still support the Fed’s case to tighten policy more aggressively to rein in inflation pressures while companies continue to highlight higher costs and supply chain issues.
Caterpillar (CAT) and Western Digital (WDC), which are down sharply following their earnings reports, spoke on the latter issues. Chevron (CVX) is down 5% after missing EPS estimates.
Stepping back, the S&P 500 has traded within a volatile range this week — mostly below its 200-day moving average (4435) — so while the index gains are encouraging, buyers would like to see the market not sell into any sign of strength. It’s starting to do just that, though.
